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Cattle markets face favorable supply, demand

By Laura Whelan

MISSISSIPPI STATE -- Despite economic uncertainties and a wet grazing season, supply and demand levels indicate a stable year for cattle markets.

"The cattle market is in a much better supply situation than it experienced three to four months ago, and so far this year demand for beef has been better than last year," said John Anderson, agricultural economist with Mississippi State University's Extension Service.

Live cattle futures contracts have most likely passed their seasonal peak, and fed cattle prices are expected to decline about $1 per hundredweight each per week in May and June. This summertime downward trend is typical.

Anderson said the April U.S. Department of Agriculture's Cattle on Feed report contained few surprises and was in line with most expectations. Notable in the report was the high number of placements into feedlots from wheat pastures in Kansas, Oklahoma and Texas.

"Wheat pastures in those states were better this year than in the last four to five years," Anderson said. "This is significant because cattle come off wheat pastures and into the feedlots in a relatively short period of time. This should not cause a glut in the market this year because numbers of cattle in feedlots are relatively low right now; however, it will contribute to seasonally lower cattle prices this summer."

Anderson said feedlots are very current, meaning the cattle market is operating on schedule. They are not reaching full capacity, suggesting the current cattle supply is not burdensome.

A significant trend in the market is the very wide choice/select spread of around $15 per hundredweight. This wide spread is due in part to the decline in fed cattle futures prices relative to cash prices, leading producers to pull cattle forward to market.

"The wide choice/select spread indicates there is not a lot of choice beef available and there are many nearly underfinished cattle. This is a positive sign on the supply side because it indicates feedlots have done a great job of moving cattle," Anderson said.

Cattle producers will face the tough decision of marketing calves early or holding cattle on feed to qualify more for choice grade and receive higher prices.

Overall, the demand for beef has increased over the past year. Economic conditions will continue to impact this demand, as was evident when the market rallied following U.S. success in the war in Iraq last month.

Right now, summer futures prices are discounted due to the current economic uncertainty and the anticipated increase in supply when wheat pasture cattle reach slaughter weight.

Although the fundamentals of the cattle market look positive, Anderson said an unexpected rise in corn prices could have a harsh effect on the industry.

"Corn prices have been very low for about five years because crops have been so good," Anderson said. "But this year there is not a large carryover of corn. If this year's corn crop is damaged, there won't be a substantial backup supply, which could cause corn prices to increase significantly from where they are now."

Higher corn prices would have a substantial impact on Mississippi cattle producers because as corn prices increase, the cost of feeding increases. In order to remain profitable, cattle buyers must pay less for calves.

The wet, harsh weather during the cool forage season was one of the greatest concerns of producers, many of whom spent more than usual on feed costs out of pocket due to poor grazing conditions.

"The weather last fall affected most of the ryegrass in the state, so cattle that fed on ryegrass will probably be at lighter weights than usual," said Blair McKinley, beef management specialist with the Extension Service. "But from early spring up to the present, ryegrass has been about normal."

"The cold, wet winter hurt the weight of fall-born calves, and spring calving herds may see a lower conception rate in mature cows due to their poor condition coming out of winter," said Mike Howell, Extension area livestock agent in Verona. "But the overall condition of herds is improving as pastures are responding to the current warm temperatures."

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